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Incentives for Anticompetitive Behavior by Public Enterprises

David E.M. Sappington & J. Gregory Sidak

Abstract

We examine the competitive behavior of a public enterprise that does not seek solely to maximize its profit. We find that despite a reduced focus on profit, a public enterprise may have stronger incentives to pursue anticompetitive activities than does a private, profit-maximizing firm. These activities include setting prices below marginal cost, raising the operating costs of existing rivals, erecting entry barriers to preclude the operation of new competitors, and circumventing regulations designed to foster competition.